Decision
This Administrative appeal was filed by [Bank X] (X Bank or the “Bank”)
requesting a change in its capital group (“CG”) classification for the
semiannual assessment period beginning July 1, 1998, and a change in the CG
classification for [Bank Y] ("Georgia bank") for the semiannual period beginning January 1,
1997, Bank is successor to the Georgia bank due to a merger transaction on
June 1, 1997. The assessment risk classification is “2A” for each bank of
the respective assessment periods and a change to “1A” is requested.

In December of 1998, the Parent Corporation discovered reporting errors
that affected the calculation of risk-based capital ratios. Call Report
amendments for the subject banks were filed to correct the miscalculations
and, as a result, capital ratios fell below the well-capitalized criteria
thereby changing the CG classifications from “Well Capitalized” to
“Adequately Capitalized” for the subject banks.1
Consequently, the
assessment invoice for X Bank for the second quarterly payment of the first
semiannual assessment period of 2000 included prior period adjustments with
interest totaling $6,462,075.49 (this amount included $5,750,089 for X Bank
and $711,985.65 for the Georgia Bank).

The Bank claimed that capital ratios are “managed ratios” and had
management been aware of reporting errors associated with the calculation of
the risk-based capital ratios, sufficient capital was available for pushdown
from the parent company to cover the assessment periods in question. The
Bank further claimed that more than four times the necessary capital was
available to remedy the deficiency for X Bank and more than five times the
necessary capital for the Georgia bank. The Bank also indicated that it is
the holding company’s policy to manage its subsidiary banks so that “they
meet well capitalized risk-based capital standards at all times” and
requested that the FDIC waive the assessment adjustments derived from the
assessment risk classification changes.

In a letter dated June 14, 2000, the Associate Director of the Federal
Deposit Insurance Corporation’s (“FDIC”) Division of Insurance (“DOI”)
denied the Bank’s request to change the CG classifications for the subject
banks. X Bank is appealing that decision.

Background

CG assignments are made in accordance with section
327.4(a)(1) of the
FDIC’s Rules and Regulations, using the method agreed upon by the Federal
Financial
Institutions Examination Council (“FFIEC”) Surveillance Task Force for
calculating capital ratios. The method utilizes data reported in an
institution’s Report of Income and Condition (Call Report) or Thrift
Financial Report as of the applicable cut-off date. The June 30, 1996 Call
Report was used for the assessment period beginning July 1, 1997, and the
December 31, 1997 Call Report was used for the assessment period beginning
July 1, 1998. Generally, changes to the CG assignment can only be made by
amending the applicable Call Report.

X Bank initially requested a review of the CG assignments by letter dated
May 10, 2000 to the FDIC. The materials submitted by X Bank were reviewed
and the circumstances were found to be either unique nor the application of
the regulation to have been inequitable.

Analysis and Conclusion

In its June 14, 2000 letter of appeal to the Assessment Appeals
Committee, X Bank provided no new facts to bolster its assertion that the
situation and circumstances are unique and deserve special treatment by the
Assessment Appeals Committee. The Bank indicates that sufficient capital was
available for pushdown from the parent company to cover the shortfalls.
However, the FDIC evaluates each institution’s capital position and
potential risk to the deposit insurance fund on an individual basis. In
determining the capital position of a bank that is a member of a bank
holding company, the FDIC evaluates capital according to that which would be
required for the bank on its own merit, regardless of its subsidiary
position within the holding company. Thus, as a matter of policy, the FDIC
cannot consider capital held at the holding company level as part of a
subsidiary bank’s capital base if the capital is not in the bank at the time
the institution is being evaluated for deposit insurance assessment
purposes. To effectively administer a system such as the risk-related
premium system, which covers over 10,000 institutions, consistent application
of reasonable rules is extremely important. It is a general belief that
while exceptions to the rules may, under compelling circumstances, be
considered, such must be both rare and well supported if the system is to
maintain credibility.

For the reasons discussed herein, under authority delegated by the Board
of Directors of the Federal Deposit Insurance Corporation, the Committee
denies X Bank’s appeal.

1
Based on the amended data, Georgia Bank reports a Total RBC ratio of 9.73
percent and X Bank reports a Total RBC ratio 9.52 percent periods for the subject
assessment periods.